Friday, March 19, 2004

A Long and Winding Road
Yesterday whilst reading Peter C's latest entry I stumbled across a debate in his comments section about the role of tariffs in Britain's industrialisation. I posted a response to this comment which then prompted this, this and this by way of a flurry of rejoinders. I'd intended to post a short response this evening but..well, the short response turned into the longest blog article I've ever written. Far too long for Peter C's comments section, so I've pasted it here. Having spent the better part of the last 4 hours writing this, I'm afraid that I'm in no mood to edit or add links now. So you'll just have to be patient. I accept full responsibility for all errors (factual, grammatical and otherwise) of which I expect there to be many..

A long response addressing Alan's point about the importance of protectionism. Please bear with me.

The first thing that you need to bear in mind is that it doesn't make sense, logically, to argue that Britain used tariffs to aid the industrialisation process. Why? Because at that point (mid 18th century) no other country had experienced an industrial revolution. Using tariffs to protect weak industries and promote growth implies an intentionality predicated upon an understanding of where one is now and where one would like to get to. But if you don't have the example of other industrialised countries to look to (because such examples do not exist), you simply don't know where you are going. The first country to industrialise had to do so 'blind'. Britain bootstrapped itself into an industrial revolution by building, subconsciously, on a whole host of favourable factors. And no, Alan, despite the sources you quote I'm afraid that I remain unconvinced that tariffs played much of a role in this process. So lets say you grant me my argument that the first country to industrialise could not do so consciously, you then have to explain why Britain did in fact industrialise. Other countries have had tariffs at various points and did not industrialise and this suggests that there was something more going on in Britain. So, tariffs seem not to be a sufficient condition, otherwise the first country to industrialise would have been the first to use tariffs to protect its home industries. But it appears that they are not a necessary condition either?

Two questions, which go to the heart of the discipline: Why Britain? Why then? As a first cut I should point out that the notion that Britain only began to exhibit the signs of incipient industrialisation in the late 18th century is, by now, discredited. I point you to MacFarlane's excellent, 'The Origins of English Individualism' for the classic argument suggesting that England possessed functioning, active markets for the trading of land as far back as the 12/13th centuries. This means, of course, that feudalism in England was different to that practised elsewhere. Power was more dispersed, there were greater levels of freedom and, consequently, it was less likely that a parasitic state would emerge. Obviously this is important when looking at the causes of England's industrial revolution. Another important work is Wrigley's 'Continuity, Chance and Change' which suggests that over the 200 years up to 1780, and industrial lift off, England experienced a remarkable rise in agricultural productivity. The consequences of this were to create a pool of surplus (and increasingly urban labour), and to generate surplus capital with which to invest in new methods.

What caused this productivity improvement? The answers are not at all clear, I'm afraid. England at this stage was improving internal transport links and creating bigger domestic markets and it was also undergoing beneficial institutional changes (see North and Thomas 'The Rise of the Western World' for a good summary of the 'institutional' view). But the improvement may have come down to something as esoteric as the fact that England's stock of draft horse per capita of human labour increased substantially over the period. The result: the opportunity cost of agricultural labour went up and it switched out of agriculture into other areas - cottage industry, for example. Horses were not only more productive, but they were also the major source of fertiliser. More horses = more horse dung = higher crop yields. It sounds silly, but when trying to explain why an economy suddenly defies all historical experience and starts to grow, these explanations take on a peculiar weight.

But other countries had experienced gains in agricultural productivity and yet failed to industrialise. China had famously been through more than one such cycle. So what gives? And is the missing variable tariffs? Well, it bears making the obvious point that China had implemented a variety of tariffs of varying degrees of severity. This culminated in the Ming Emperor's issuing of the various decrees that lead to the abandonment of long range trade and the shipping industry that went with it. (An aside: what a wonderful counter-factual raises it's head here viz. could the Chinese have rounded the Cape before Diaz and Magellan et al if not for the Ming inspired turning in?)

The answer of course has nothing to do with tariffs and everything to do with rational individual responses to prevailing incentive structures. As any good neo-classicist will tell you. As Smith, Ricardo, Malthus etc told us whilst laying the ground work for the discipline. To wit: as a country experiences agricultural productivity gains, surpluses are generated which might be thought to be the basis for an industrial revolution. In fact, as Elvin (The Pattern of the Chinese Past) argues, what normally happens is that the increased output is eaten up by increased child birth. In the brutal pre-industrial world, population levels are determined by the amount of available food. Malthus knew this. But Malthus is decried as a doom-monger, a quack, maybe a charlatan, nowadays. He wasn't. When food output increases, population goes up. But of course, without the benefits of industrial technology, there are only so many things that you can do to improve agricultural productivity. Once you've laid down a road, improved the axles of horse-drawn carts and created efficient internal markets, you're pretty much stuck for further improvements. If by this stage you haven't taken off, you're trapped. A very large population, agriculture which is very efficient (it has to be to support the population) and no prospect of further gains. Elvin called this the 'high level equilibrium trap' and it explains China and most of the rest of pre-industrial human history. But it doesn't explain England in the 18th century. Why not?

Perhaps here, at last, we find the place for Alan's tariffs. Or perhaps not. Consider, it is the second half of the 18th century and England is travelling down a path that China has been down already. We have few reasons to believe that our intrepid little island is going to do any better. In fact, if we are betting men, we’re probably going to place our money on those good Dutch burghers across the North Sea. But jolly old England has a few aces which might allow it to escape Malthus and achieve the impossible: sustained economic growth that is rapid enough to outpace population increases.

What are these aces? Well, coal is the first. Both Wrigley and more recently, Pomeranz ('The Great Divergence') have stressed the importance of England's deposits of high quality and fortuitously positioned coal fields. Why are they important? Before coal, the economy depended upon organic fuel power, wood (relatively scarce and thus relatively expensive) and such power as could be gained from water mills, dung etc. This might sustain a small, feudal economy but not one which is preparing to go where no economy has ever been before. If wood is the only source of fuel you need to plant trees. But trees take up land and land is scarce and better devoted to agriculture. Coal allows England to side-step this issue, it is in effect an infinite stock of potential energy as opposed to the limited flow of wood and dung energy that powered the organic economy. Suddenly all those marginal forests can be cut down and the land devoted to other uses and some of those surplus labourers (remember them?) can be sent down the mines to haul up yet more of the stuff. The organic era ends and England is the first to usher in an economy based upon inorganic energy.

But there is more to it than this. You're not going to explain the most important event in economic history with one variable. What else? Well, here the importance of England's access to the Atlantic economy plays a role. By importing food, sugar etc. England was again able to relieve the pressure on her already over-utilised domestic lands. Ever heard the phrase, 'sheep eating men'? Until the development of the Atlantic Economy, the most important of the early integrated trading networks, every additional head of sheep really did impact on the country's ability to feed, house, clothe etc itself. No surprises here, sheep and men compete for much the same resources in order to survive. Once the trade routes had been established, the pressure was relieved and Malthus was fought further back. But the population of the British Isles was still going up and although Atlantic trade and the discovery and systematic exploitation of coal was delaying the onset of a Malthusian population crisis, that increase was going to eliminate surplus. Just as it had done everywhere else. Just as it had always done, in fact. But here is where Britain finally diverged from history and achieved take off to something new and unknown.

The Atlantic economy and coal prolonged the surpluses generated by that earlier improvement in agricultural productivity long enough for a class of men to emerge whose genius would create the frame-work for industrialisation. The tinkerers, the experimenters, the men of science. Thousands of them. Thousands of them who, unlike their ancestors, found that they didn't need to spend their lives in the fields producing food. In the rapidly expanding towns and cities, ideas were generated and exchanged, techniques refined. Britain was open to the outside world. Foreigners and their ideas arrived at the White Cliffs and added spice to an already heady broth. The basis for the steam engine was established, the iron furnace was developed and refined, the looms that powered the textile industry were invented and so on and so forth. The effects were electric. Productivity in the textile industry improved by hundreds and then thousands of percent, the steam engine changed man's ideas about what could be achieved in the field of manufacturing. Indeed it created the idea of manufacturing - large combines of workers and machines as opposed to small family owned cottage industry.

The exact processes that underlie technological innovation (see Mokyr, 'The Lever of Riches' and Landes, 'The Unbound Prometheus' for two of the best efforts to wrestle the beast) are still only imperfectly understood although, at the risk of appearing flippant, it is obvious that the spinning jenny was not invented and perfected as a result of a state lead effort to industrialise. It is obvious too that tariffs played no role in this. How could they? The process of technological break through was small scale, cumulative and accompanied by endless trial and error. This is not Germany in 1860 using tariffs to protect the industries being created by importing British technology. Britain had nobody to import from, Britain didn't have the example of an already existing industrial economy to look to for ideas about how to achieve her own revolution. To see this another way consider that the generations living after the mid 18th century in Britain were only dimly aware of the importance and meaning of the great changes going on around them. The revolution was an unconscious process. Elsewhere and later, change was a conscious process, usually self-directed. In the case of Germany and the US 100 years later, it makes sense to speak of govt policy aimed at industrialisation, it makes sense to argue that governments used tariffs to aid this process. Interestingly at this stage, the first to industrialise was still more circumspect. The first had not needed tariffs and for the most part she saw no reason to change her mind. For more on how technology changed industry I point you to one of the more interesting accounts, that of Mann and Wadsworth, 'The Cotton Trade and Industrial Lancashire'. They discuss the importance of institutional factors (of which more shortly), the effect of imports of raw cotton (replacing linen), the effects of trade with India, transfers of technology from other parts of Europe and the long process of experimentation that eventually lead to mechanised spinning. Incidentally, Patrick W, I'm afraid that I can’t endorse your recommendation of Landes, 'The Wealth of Nations'. I think his earlier 'Unbound Prometheus' is by far the better work and although it draws on cultural explanations is not quite as ham-fisted as 'Wealth' when it does so.

But what of the Corn Laws, a tariff and only repealed at the end of the 1840s. I'm afraid that I give short shrift to those who argue that the Corn Laws somehow amount to a necessary condition for the revolution. They're best explained as the outward manifestation of a political contest between land owners and the newly emerging class of industrialists. The fight for the Corn Law represented a reactionary effort to protect what was, in effect, a dying way of life. Land was once again becoming relatively expensive - massive urbanisation and industrial expansion had seen to that. The only way the under-utilised estates (underproductive in fact) could remain viable was by artificially inflating the price of the goods produced. But note that if this is true then the tariff was a massive drain on the economy (tariffs always are of course) and in this case you can't even argue that they were being used to protect an infant industry. Revolutions always lead to changes in the prevailing social order, this slow incremental one no less. The victims were the landed aristocracy, the winners were the industrialists, the bankers and merchants.

What of the other variables? I've already mentioned institutional factors but it bears mentioning them again in a bit more depth. The important point here is not private property per se (although this becomes an issue as industrialisation really gets under way) but predictability in the distribution of rights relating to property and tax. You are not going to industrialise if you have a state in control which arbitrarily seizes property and which sets tax levels with no reference to the ability of the payee to actually stump up the cash. Likewise, if traders cannot be sure that their goods will not be seized or looted you are going to battle to lay the groundwork for an efficient trade system. Think of the Indian Moghuls plundering their merchants (and see Bayley, 'Rulers, Townsmen and Bazaars' for more). These are all simple points and yet in many historical cases, the state was predatory, tax was arbitrary, the rule of law weak. And consequently the prospects for a sustained increase in growth were weak if not non-existent.

But to really explain the genie's emergence we have to go a little deeper and consider the emergence of such institutional agents as the Joint Stock Company which pools risk and facilitates the expansion of foreign trade. Co-incidentally, empire too. The Joint Stock Company really required an efficient financial system and its no accident that as Britain girded herself for the great leap, she found that her financial industry was the most highly developed in Europe. We might note in passing the importance of intellectual property rights (patents) and the role they played in allowing inventors to secure monopoly profits in the short to medium term. This kind of incentive is important. Yeoman farmers will only abandon their fields and invent the steam engine if they think they'll get rich doing so. Why does all this happen? Hard to say. Perhaps we have to rest with Macfarlane's argument about English Individualism. Perhaps geography plays a role. An island has less fear of invasion, its people therefore gear up to enrich themselves and create the institutions required to do so. Without the spectre of Mongol, Moslem, Prussian or French invasion (a real worry on the continent) to threaten its people with, the British state found it harder to justify repression. Geography is an exogenous factor, yes, but it makes people, it shapes them and it directs their energies.

So lets return to the issue which set this folly in train, namely Alan's belief that tariffs were a necessary condition for industrial revolution. In the post that I initially responded to Alan said:

'If there hadn't been that earlier two centuries of protectionism, there wouldn't have been a British industrial revolution in the first place - or, at least, it wouldn't have developed to Britain's advantage in nearly the same way. This is the problem with having too Panglossian a view of free trade. Yes, once a nation's industrial base is established, it can take advantage of free trade conditions: but it has to create that base first.'

I hope I've pointed out the problem with this argument. It ascribes intentionally where none existed, indeed where none could exist. For Alan's argument to work he has to convince us that prior to the industrial revolution, there existed a concept of industrialisation. Only if we accept this can we then take the additional step and buy his argument that the state deliberately set out to industrialise. This is obviously nonsense. The concept didn't exist, indeed the idea of change itself was only very shakily accepted or even understood.

Perhaps though, Alan means that mixed in with all the other random factors that ultimately did lead to industrial growth were tariffs. These tariffs were much the most important of those random factors constituting no less than a 'necessary condition'. I'd be interested to hear why he favours tariffs above the other factors, since my reading of economic history suggests that there are different routes to industrialisation. Some have industrialised without tariffs, some with, some with a strongly interventionist state, some without. Indeed, it is hard to swallow the line that any one variable is a necessary condition for industrialisation. The problem is that if we accept the necessity of tariffs we are left to wonder why industrialisation didn't happen centuries earlier than it did. Why not in some of the early city states? Why not China at various points in its long history? Or India? Or the Romans? The answer of course is that there are many factors, many conditions which need to be fulfilled. But many conditions suggests substitutability. You don't have coal in your country, and we know that coal was a necessary condition of Britain's industrialisation. I suppose this means that your country's not going to industrialise. You see how preposterous this is. There is nothing vital about tariffs. They've played a role in the industrialisation of some countries (although I have my doubts about the efficacy of tariff led industrialisation) but not in others. In Britain they played a negligible role. Industrialisation was the result of a fortuitous combination of institutional change, geographical luck, an emerging international trade system, openness to new ideas etc. I've offered a comprehensive, multiple variable analysis that sets the historical context whilst allowing for the role of accident and contingency. And for all that Alan trumpets the state and tariffs, the very source that he quotes admits that tariffs were seen as a means of raising revenue rather than promoting industrial growth. A through back to that old mercantilist nostrum about the importance of accumulating specie. Remember how it goes, 'trade is a zero sum game, we need to protect ourselves and our stock of specie by making trade difficult for our rivals.' You can see this economic fossil emerging in Alan's comments about the need to 'compete' and to 'protect' etc. And of course if trade really is a zero sum game then his argument makes sense. But it isn't. As most of us know.

Finally, (finally!) I should add that Mathias (whom Alan quotes) is a respected academic and has made a name selling his ideas about Britain (which are not as extreme as they appear when quoted out of context). But he really is trying to slip something big past us if he is suggesting that Britain's textile industry relied on state intervention and tariffs to prosper. It didn't, it relied on the fact that it was several orders of magnitude more productive than the majority of its rivals. So too if we are to belief that the preventing of artisans from emigrating played an important role in Britain's industrialisation. It might have hindered industrialisation elsewhere but it assuredly did not in Britain. I'd like to point out too that if you look hard enough at something as complex as industrialisation you can always find examples to support your contention. But you need to keep things in perspective, you heed to ask yourself how important the variable is. Frankly' the quotes from Mathias don't amount to much. I'm sure the stuff he mentions happened, I'm sure they had an impact. But it was marginal stuff. It doesn't carry explanatory weight. And were it is not, he paints with such broad strokes that one is left to wonder how he sees the processes that he mentions actually happening. So, who do you believe? Did Britain industrialise because of a wise, interventionist state which was an eager proponent of the judicious use of tariffs to foster the development of industry? Or did it industrialise for the reasons I've mentioned? Less clear cut, more haphazard, more contingent on luck and geography? If you think about it, this really is the only way that the very first industrialisation, ever, could have happened.

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